The financial sector isn't the powerhouse of the UK economy. It's more like a Wendy house

HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuse

Five years ago today, following a frantic weekend of negotiations, during which Alistair Darling later admitted cash machines were within hours of being switched off, the Government announced that British banks would be part-nationalised to stave off collapse. We bought an 82% stake in RBS and 40% in Lloyds/HBOS at a combined cost of £37 billion. 

It was part of a wider bailout package which cost £132.89 billion of public money – the equivalent of £2,000 from each man, woman and child in the UK. Former Governor of the Bank of England Mervyn King quipped a year later: "To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many.”

Half a decade later and the situation has changed little. According to the most up-to-date figures from the National Audit Office, £118.86 billion (or 89 per cent) of the original bailout is still outstanding. The interest payments alone cost the public purse £5 billion a year. Whilst some of the costs are recouped through the Government charging banks interest and fees, the NAO estimates it has still amounted to “a transfer of at least £5 billion from taxpayers to the financial sector” since the crisis.

There are others reasons the many are still propping up the few. Take for instance the 'too-big-to-fail' subsidy, whereby banks can borrow money cheaply because creditors know the Government (read: taxpayer) will bail them out if things go wrong. It's worth a fortune - £235 billion to Britain's four biggest banks between 2008-2011, according to research by the New Economics Foundation.

Or look at financial service's incongruous exemption from VAT. It's understandable that some items are VAT-free, for example: children's clothes, public transport, medical and funeral costs; but why are we exempting the services of a derivatives trader? According to HMRC itself, this anomaly costs us another £5bn a year. The International Monetary Fund has warned this special treatment of the banking sector means it is under-taxed and has allowed it to grow “too large”. 

Banks have also become adept at gobbling up public money intended for the real economy. This not only artificially inflates their profit and pay, but acts as a tourniquet on growth. Despite having drawn down £17.6bn since the Funding for Lending Scheme began just over a year ago, banks' lending to business contracted by £2.3bn.  

The cumulative effect is that banks live in a welfare dependent bubble, cushioned from feeling the effects of the crisis they caused. Financial sector growth has far outstripped the rest of the economy since the crisis: in 2012 for example, if you take out the fines and the one-off costs of adjusting to regulatory changes, the profits of the five biggest banks' rose 45% to £31.5 billion. The economy virtually flat-lined during the same period.

Yet whilst the financial sector likes to think of itself as the powerhouse of the UK economy, in terms of the tax it pays, it's more of a Wendy house. HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuses to top staff last year alone.

Meanwhile, the public have paid in service cuts, job losses and tax rises. Government spending will be cut by 9.1%, £141bn in real terms, during the course of this Parliament, chronically impacting on the poorest who rely on services most. Whilst the top rate of tax was cut, giving millionaires a tax break, the VAT increase to 20% has been shown to hit the poorest 10 per cent of the population more than twice as hard as the richest 10 per cent.

This stark injustice has prompted other countries to take action. It is the explicit reason why Germany, France, Italy, Spain and seven other European countries are implementing the Financial Transaction Tax of between 0.1% - 0.01% on stocks, bonds and derivatives that will raise up to £30 billion. It is the only policy to have emerged post-crisis that will ensure those responsible pay to clean up the mess they caused.

Unfortunately, the UK Government has not only refused to join in, but has taken the proposal to the European Court of Justice. It's a worrying indictment of their priorities, compounded two weeks ago when they launched another legal challenge, this time against the EU banker bonus cap. This was followed by news that the Government is scrapping the 1 per cent pay rise due to NHS staff in April. As an example of misplaced priorities it is difficult to beat.

Unless of course you look at ministers’ treatment of the poorest – the bedroom tax, benefit cap and punitive sanctions for those who miss Job Centre appointments - these policies are all signs that the coalition is determined to end what they call ‘the something for nothing’ culture. It’s a shame they won’t apply the same logic to bankers.

A protestor from the 'Robin Hood Tax Campaign,' dressed as 'Robin Hood,' holds a fake budget box above the Houses of Parliament. Image: Getty

Simon Chouffot is a spokesperson for the Robin Hood Tax campaign and writes on the role of the financial sector in our society.

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It's easy to see where Berlin is being rebuilt – just hit the streets

My week, from walking the streets of Berlin to class snobbery and the right kind of gentrification.

Brick by brick, block by block, the people are rebuilding the city once called Faust’s Metropolis. To see it clearly, put your boots on. One of the most bracing walks starts by the Gethsemane Church, which served as a haven for dissenters in the last days of the GDR and takes you down ­towards the Hackescher Markt.

Here, in what is still the eastern half of a divided city that wears its division more lightly, is a Berlin experience both old and new. In three decades of frequent visits, it has been fascinating to note how much this part of town has changed. Even a decade ago these streets were rundown. With crumbling buildings showing bulletholes, it wasn’t hard to imagine what the place looked like in 1945. Now there are lilacs, blues, and yellows. Cafés, bars and restaurants abound, serving the young professionals attracted to the city by cheap rents and a renewed sense of community.

 

Breaking the fourth wall

Looking north along Schliemannstraße, you’ll find a delightful vista of well-tended balconies. It’s a pleasant place to live, notwithstanding the gaggle of grotesques who gather round the corner in the square. On Kastanienallee, which forms the second leg of the walk, an old city feels young. It’s a kind of gentrification but the right kind. There’s more to eat, to drink, to buy, for all.

Berlin, where Bertolt Brecht staged his unwatchable plays, was supposed to have been transformed by a proletarian revolution. Instead, it has been restored to health by a very middle-class one. Germany has always had a well-educated middle class, and the nation’s restoration would have impossible without such people. The irony is delicious – not that irony buttered many parsnips for “dirty Bertie”.

 

The new snobbery

The British Museum’s survey of German history “Memories of a Nation” is being presented at the Martin-Gropius-Bau as “The British View”. Germans, natürlich, are curious to see how we observe them. But how do they see us?

A German friend recently in England  said that the images that struck him most forcibly were the tins of food and cheap booze people piled up in supermarkets, and the number of teenage girls pushing prams. Perhaps Neil MacGregor, the former director of the British Museum who will shortly take up a similar role here at the new Humboldt Forum, may turn his attention to a “German View” of the United Kingdom.

There’s no shortage of material. In Schlawinchen, a bar that typifies Kreuzberg’s hobohemia, a college-educated English girl was trying to explain northern England to an American she had just met. Speaking in an ugly modern Mancunian voice that can only be acquired through years of practice (sugar pronounced as “sug-oar”), she refer­red to Durham and York as “middle class, you know, posh”, because those cities had magnificent cathedrals.

When it comes to inverted snobbery, no nation can match us. To be middle class in Germany is an indication of civic value. In modern England, it can mark you as a leper.

 

Culture vultures

The Humboldt Forum, taking shape by the banks of the Spree, reconsecrates the former site of the GDR’s Palace of the Republic. When it opens in 2018 it will be a “living exhibition”, dedicated to all the cultures of the world. Alexander von Humboldt, the naturalist and explorer, was the brother of Wilhelm, the diplomat and philosopher, whose name lives on in the nearby university.

In Potsdamerplatz there are plans to build a modern art museum, crammed in between the Neue Nationalgalerie and the Philharmonie, home to the Berlin Philharmonic. Meanwhile, the overhaul of the Deutsche Staatsoper, where Daniel Barenboim is music director for life, is likely to be completed, fingers crossed, next autumn.

Culture everywhere! Or perhaps that should be Kultur, which has a slightly different meaning in Germany. They take these things more seriously, and there is no hint of bogus populism. In London, plans for a new concert hall have been shelved. Sir Peter Hall’s words remain true: “England is a philistine country that loves the arts.”

 

European neighbours

When Germans speak of freedom, wrote A J P Taylor, a historian who seems to have fallen from favour, they mean the freedom to be German. No longer. When modern Germans speak of freedom, they observe it through the filter of the European Union.

But nation states are shaped by different forces. “We are educated to be obedient,” a Berlin friend who spent a year at an English school once told me. “You are educated to be independent.” To turn around Taylor’s dictum: when the English speak of freedom,
they mean the freedom to be English.

No matter what you may have heard, the Germans have always admired our independence of spirit. We shall, however, always see “Europe” in different ways. Europe, good: we can all agree on that. The European Union, not so good. It doesn’t mean we have to fall out, and the Germans are good friends to have.

 

Hook, line and sinker

There are fine walks to be had in the west, too. In Charlottenburg, the Kensington of Berlin, the mood is gentler, yet you can still feel the city humming. Here, there are some classic places to eat and drink – the Literaturhauscafé for breakfast and, for dinner, Marjellchen, a treasure trove of east Prussian forest delights. Anything that can be shot and put in a pot!

For a real Berlin experience, though, head at nightfall for Zwiebelfisch, the great tavern on Savignyplatz, and watch the trains glide by on the other side of Kantstraße. Hartmut Volmerhaus, a most amusing host, has been the guvnor here for more than 30 years and there are no signs that his race is run. The “Fisch” at twilight: there’s nowhere better to feel the pulse of this remarkable city. 

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage